For shorter-term financial projections (less than 10 years), financial planners may use actual rates of return on fixed-term investments held to maturity and dividend yields on equities. The actuarial assumptions (e.g., assumed rate of return on investments, inflation, medical expenses) are used to determine the amount of the systems' liabilities and the amount the state must pay each year to help fund the plans on an ongoing basis. For pay-related plans, the calculation of the benefit obligation would reflect expected compensation levels, including changes attributable to inflation, seniority, promotion, and other factors. Supporting Information Actuarial Assumptions - Washington Information regarding the constituent bonds in the related bond index. 4, 23, Data Quality, 25, 35, 41, and 51. The rate selected from the index or indices, as well as the adjustments made to that rate, should be supported. Deterministic vs. Stochastic models: A guide to forecasting for pension In such cases, the rounding technique should be unbiased. The Pension Funding Council (PFC) adopts economic assumptions for all plans/systems, except LEOFF 2 which are adopted by their Board; these assumptions are then subject to revision by the Legislature. Or, because tax rates may rise at the end of 2025, you can switch to project your federal taxes using higher rates in the Assumptions section of My Plan. The Arizona Public Safety Personnel Retirement System administers a plan for public safety personnel comprised of three tiers depending on participants' date of hire. Under a benchmark approach, entities start with a rate from a published bond index and make certain adjustments, either upward or downward, to reflect the individual facts and circumstances of their plans. This actuarial standard of practice (ASOP or standard) does the following: a. provides guidance to actuaries when performing actuarial services that include selecting (including giving advice on selecting) economic assumptionsprimarily investment return, discount rate, post-retirement benefit increases, inflation, and compensation increasesfor measuring obligations under defined benefit pension plans; b. supplements the guidance in ASOP No. ASC 715-60-35-79 and 35- 80 outline similar requirements for the selection of assumptions for other post-retirement employee benefit (OPEB) plans. It is for your own use only - do not redistribute. The forecast projects three-month Treasury Bill rates, 10-year Treasury Note rates, CPI-U, gross domestic product, and unemployment rates. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Social Security Bulletin. endobj (For this, the system will employ the 2017 rates . The Pension Task Force provided its report to the ASB in February 2016. If an economic assumption is being phased in over a period that includes multiple measurement dates, the actuary should determine the reasonableness of the economic assumption and its consistency with other assumptions as of the measurement date at which it is applied, without regard to changes to the assumption planned for future measurement dates. The State Pension Funding Gap: 2016 | The Pew Charitable Trusts Some of these assumptions are economic assumptions covered under this ASOP, and some are noneconomic assumptions covered under ASOP No. Therefore, a weighted-average or "blended" discount rate, based on individual discount rates applicable to the varying periods until the benefits are due, should be used for discounting the pension benefit obligation and related pension cost components (i.e., service cost and interest cost). Warning: Each web version of an ASOP is provided as is for convenience of the user only and is not, and should not be considered to be, the official version of an ASOP. When the actuary is responsible for selecting or giving advice on selecting economic assumptions, the actuary may incorporate economic data and analyses from a variety of other sources, including representatives of the plan sponsor and administrator, investment advisors, economists, and other professionals. Details are available online: If the current assumed rate of return is at or above the mid-point in the range, the full amount of excess gains will be used to lowerthe assumption. The disclosures should be based on the economic assumptions as of the measurement date at which they are applied without regard to changes to the assumptions planned for future measurement dates. Rate of increase in pensions, both in deferment and in payment; . 41 for guidance related to the retention of file material other than that which is to be disclosed under section 4. With respect to assumptions that the actuary has not selected, other than prescribed assumptions or methods set by law, the actuarys report should identify the following, if applicable: a. any such assumption that significantly conflicts with what, in the actuarys professional judgment, is reasonable for the purpose of the measurement (section 3.14); or. To be clear, as Treasurer I serve as Secretary of the Investment Advisory Council, and am an ex officio member of the governing boards of the State's largest pension plans - the State Employees' Retirement Commission and the Teachers' Retirement Board. xmHQEO\"CzaXYaRaTfAHD/)~`IP(I*%#"LzPB J=gf`0`00q~?_R&%%01G[32QFJXRieLpM!w: ^~ Y~=G@ BX2:R"NQY~~!noTL)A7QzEDD|!_>hhh v m'#>}uG_ 'NHnlo2A GZ#"J [l. For example, a collective bargaining agreement ratified after the measurement date may lead the actuary to change the compensation increase assumption that otherwise would have been selected. For example, the actuary may expect a plan to terminate when the owner retires, or a frozen plan to terminate when assets are sufficient to provide all accumulated plan benefits. Different plans . PDF Asset Allocation and the Investment Return Assumption